The old economic model — that Asia exports to the U.S., saves its earnings and lends the money back to Americans to buy more stuff — is broken and no one can say what will arise in its place.
Americans are not willingly becoming savers, cultural change is being forced on them by the credit crunch and their own busted balance sheets.
The hope for Asia, which has seen an absolutely stunning cliff dive in its economies, is that domestic demand can grow to replace U.S. consumption. This faces huge hurdles; a social safety net that is threadbare to non-existent and a population that just doesn’t understand the risks of living closer to your means but sees frugality and the storing up of wealth as a virtue.
Asia banking on consumption at home replacing that from the U.S. is a bit like Las Vegas trying to make up for plunging gambling revenue by charging more for prime rib dinners; it might help a bit but it’s not a serious business model. In the meantime, economies across the region are seeing really stunning falls in activity and exports.